Monday, June 16, 2014
Fractional-reserve credit vs Bond purchases
It should be stated: fractional-reserve credit is not the problem. Bond purchasing with created money is the problem. That is illegal lending by the Fed to the Treasury.
Friday, May 30, 2014
Currency creation and economic growth
Most central banks today create currency at the time of bond purchase. Since bonds have interest attached, that means every unit of currency has a debt repayment obligation. To simply use a unit of currency contains an interest fee. That is what I term the "perpetual fee".
Historically, most central banks created currency to represent gold or silver. That limits economic growth some describe as the "cross of gold" and is one of the reasons for its discontinuance.
The solution is to decouple bond purchase from currency creation. Fractional reserve is the interest-based creation of currency that is responsive to economic growth. It is not a perpetual fee because the loan is paid back to the commercial lending institution that issued the loan. While, in theory, bonds are also paid back, this is not usually the case due to political issues. It forces the central bank into a difficult position. The central bank cannot force repayment to remove that perpetual fee.
So, if currency creation cannot be tied to either gold or bonds, what can it be tied to? It is my recommendation to look at the productive output of the country and peg the amount of currency to that number. If recalculated monthly, the economy has room to grow with adequate currency supply. Fractional-reserve lending can handle the minor fluctuations intra-month.
A common language of monetary transactions removes the friction and clarifies issues such as described above. The efficiency allows what I term "wealth translation" to perform the money supply contraction/expansion without the need for direct manipulation. The system described below is also a common interface that will work with any payment system on earth.
Historically, most central banks created currency to represent gold or silver. That limits economic growth some describe as the "cross of gold" and is one of the reasons for its discontinuance.
The solution is to decouple bond purchase from currency creation. Fractional reserve is the interest-based creation of currency that is responsive to economic growth. It is not a perpetual fee because the loan is paid back to the commercial lending institution that issued the loan. While, in theory, bonds are also paid back, this is not usually the case due to political issues. It forces the central bank into a difficult position. The central bank cannot force repayment to remove that perpetual fee.
So, if currency creation cannot be tied to either gold or bonds, what can it be tied to? It is my recommendation to look at the productive output of the country and peg the amount of currency to that number. If recalculated monthly, the economy has room to grow with adequate currency supply. Fractional-reserve lending can handle the minor fluctuations intra-month.
A common language of monetary transactions removes the friction and clarifies issues such as described above. The efficiency allows what I term "wealth translation" to perform the money supply contraction/expansion without the need for direct manipulation. The system described below is also a common interface that will work with any payment system on earth.
The problem with money today
Money is not necessarily currency.
Money is a promise to deliver value, although it might have value unto itself.
The description of value is not money.
Two major problems with today's monetary systems:
1. language differences create misinterpretations of value. Also, sometimes a value transfer has cultural implications that are not explicitly described. Language differences exist between countries and between vocations. Accountants, finance, legal, bankers, computer, and business people might use the same words, but none really understand the unintentional mis-communications.
2. language and cultural differences allow a few to deliberately create ambiguity to leverage a theft that is difficult to detect.
A common language to describe transactions eliminates the mis-communications, whether deliberate or not.
Money is a promise to deliver value, although it might have value unto itself.
The description of value is not money.
Two major problems with today's monetary systems:
1. language differences create misinterpretations of value. Also, sometimes a value transfer has cultural implications that are not explicitly described. Language differences exist between countries and between vocations. Accountants, finance, legal, bankers, computer, and business people might use the same words, but none really understand the unintentional mis-communications.
2. language and cultural differences allow a few to deliberately create ambiguity to leverage a theft that is difficult to detect.
A common language to describe transactions eliminates the mis-communications, whether deliberate or not.
Sunday, May 25, 2014
Bond/currency relationship today (Debt-based currencies)
All existing currencies are said to be debt-based. Originally, the USD was backed by gold/silver. That gold was stolen behind the scenes. So today, there is an accounting problem at the point of creation that derives from the theft. A common language does not entirely prevent theft, but does provide accountability in the future, while also providing alternatives to money supply constraints via wealth translation.
Bonds were not originally the creation of paper USD without value. Bonds were a debt, based on collateral (gold). The USD was a receipt for such. When the gold was stolen, the Fed defaulted on that receipt in 1933 (domestically), then in 1971 (internationally). Since then, dollars are created at the time of bond purchase with only legal limitations set on their creation.
Bonds were not originally the creation of paper USD without value. Bonds were a debt, based on collateral (gold). The USD was a receipt for such. When the gold was stolen, the Fed defaulted on that receipt in 1933 (domestically), then in 1971 (internationally). Since then, dollars are created at the time of bond purchase with only legal limitations set on their creation.
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